Friday, 25 September 2015

A government commissioned review is currently looking into the way UK charities raise money. Reports this week suggest it will be tough. And it should be! The review follows the high profile case of 92 year old Olive Cooke who took her own life having become exhausted by requests for money from charities. Such requests for money are all too familiar to many. In our household I would say that we average a charity letter per day, a phone call per week, and a fundraiser at the door every month. The Prime Minister was stating the obvious when he said that the behaviour of some charities was 'frankly unacceptable'.

Against this public backlash the charity sector has stood firm. Time and again I have heard spokespeople arguing that charities only do good. The argument essentially seems to be that the funds they raise are spent on worthy causes and so the ends justify the means. The charity sector, therefore, can claim the moral high ground. This argument, however, is flawed.

Charities provide public goods. It is textbook economics that public goods will be under-provided. This means that voluntary donations to charity will not be enough to provide an efficient amount of the public good - children will go hungry, old people will be lonely, and so on. In order to obtain an efficient amount a public good some form of coercion seems necessary. That's why we don't have any choice to pay taxes. And this is why charities could argue that the ends justify the means. Even if their fundraising tactics do include a heavy dose of coercion, so what - society is better off as a result.

The flaw in this argument is one of asymmetry. We all have to pay taxes. Not all of us are targeted by charities. We know from lab experiments that approximately 50% of people can be classified as free-riders and 50% as conditional co-operators. Free-riders will not voluntarily give to charity. Conditional co-operators will. Who do charities go after? It is, of course, the conditional co-operators. The more a person gives to charity the more they are asked to give. So, conditional co-operators are coerced into giving more while free-riders get off scot-free. Where is the moral high ground in this? It seems neither fair nor just.

It is also likely to backfire. That's because of the conditional in conditional co-operator. A conditional co-operator will give only if they feel they are not being exploited. And the recent behaviour of charities may well make them feel as though they are being exploited. Charities could well, therefore, see cracks appearing in their core support.

The charity sector has over-stepped the mark. It would be nice to think that they could fix the problem themselves. If they do start to see cracks in their core support then they may. More realistically, however, we are going to need legislation. Otherwise we will end up with even more children going hungry and old people lonely.